Correspondent Loan Follow Up Part 4

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Following up on my last post about the New Century loan that we haven’t been able to sell. As you recall, the appraisal came in low and so the scratch and dent lender wanted to give us 77 cents on the dollar which would amount to approximately a $100,000 loss on the loan. That type of loss would cripple our company.

We have found another option that we are currently working on. A lender has offered to take the loan with a higher appraised value on the property, but a lower loan to value amount than the original loan was underwritten at. So we will be able to refinance the loan and get it off our warehouse line. Unfortunately the first loan will be about $55,000 less than the original loan. As the current mortgage holder we’ll need to waive our prepayment penalty and then refinance the borrower and record a new deed with the new lender on the property. Once the first loan is done we’ll look at options such as writing a private second mortgage for them with very favorable terms. We’ll end up having to come out of pocket $55,000 but at least we’ll have a chance at an asset (although non-liquid and of dubious value, but hey then we can call ourselves a real mortgage bank) and a small cash payment each month towards that debt from the borrower.

This would be best case scenario and I’m knocking on wood as I write this. I will have never been so happy to lose $50,000. There is a lot that needs to happen for this to go through, but at least its a better option than losing $100,000.

I guess if we were like New Century we could value the second at the full $55,000 on our books which will make our assets look much stronger than they actually are.